Vodafone Goes Public With £1bn CWW Offer

Published in Company Comment on 23 April 2012

Deal looks attractive for both parties but could still be trumped.

Vodafone (LSE: VOD) has finally gone public with a 38p per share offer to buy Cable and Wireless Worldwide (LSE: CW).

The offer values the enterprise communications company at £1,044m -- an 18% premium on Friday's closing price of 32p per share, and around 100% more than the company was worth prior to the start of the bid process on 10 February.

Done deal?

The offer has been unanimously accepted by CWW's directors and already has the backing of both companies' financiers and 18.58% of CWW's shareholders. CWW chairman John Barton made his intentions clear when he described the offer as "an exciting opportunity … to benefit from the many advantages that will come from being part of the Vodafone Group".

Although former bidder Tata retained the right to make a counteroffer to any future bid, this seems unlikely as press reports suggest that it was having trouble raising the finance for a competitive offer and was previously offering less than 25p per share.

Voda benefits?

As a Vodafone shareholder, I think that this deal represents excellent value and should help fuel further earnings growth for the world's largest mobile operator. Here's why.

1. Cheap UK data network

One of the main attractions for Vodafone is CWW's large UK fibre network. Vodafone, like other mobile operators, is struggling with data capacity as a result of the explosion in internet traffic from its customers' smartphones.

The cost of building out a UK fibre network from scratch is extremely high; certainly far higher than the £1bn price tag attached to CWW.

2. Enterprise growth

Vodafone is thought to be keen to grow its corporate business to compensate for slowing growth in the consumer mobile market. CWW has an attractive portfolio of enterprise customers, including Tesco (LSE: TSCO) and various public sector organisations.

CWW's fixed-line network will also mean that Vodafone can offer integrated (landline, mobile and data) services to corporate customers -- the appeal of which seems to be confirmed in Vodafone CEO Vittorio Colao's statement today:

"The acquisition of Cable & Wireless Worldwide creates a leading integrated player in the enterprise segment of the UK communications market and brings attractive cost savings to our UK and international operations."

3. Undersea assets

The other main arm of CWW's business is its undersea cable network. Reports suggest that Vodafone will sell this off, which will recoup some of the costs of the deal.

4. Cost neutral?

According to a recent research note from Bank of America Merrill Lynch analysts: "Vodafone could benefit from a combination of revenue synergies, cost synergies and tax assets which together could be worth £1bn."

Voda remains a buy

All of this simply reinforces my opinion that Vodafone makes an excellent long-term buy for investors -- a decision made even simpler by Vodafone's tasty 5.9% dividend yield.

To learn more about dividend-paying shares, take a free 30-day trial to Motley Fool Share Advisor, where we recommend our top dividend share each month.

More from Roland Head:

> Roland owns shares in Vodafone and Tesco. The Motley Fool owns shares in Tesco.

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mcecaro 23 Apr 2012 , 9:30am

tax assets is worth 5 billions not 1 billion, or not?

CunningCliff 23 Apr 2012 , 11:54am

It looks like my original analysis and follow-up of this takeover were spot on:


"Thus, after Vodafone's due diligence, I would expect any formal bid -- if one arrives -- to be priced in the 30-40p range."


" I'm sticking with that belief, as I suspect that a bid around 35p would be enough to win over CWW's largest, long-suffering shareholders."

Final bid: 38p per share.

I do like a nice bit of takeover speculation! :0)


AleisterCrowley 23 Apr 2012 , 12:07pm

How much did you stake on it then Cliff?

LastChip 23 Apr 2012 , 3:31pm

For me, it's a little disappointing, as Vodafone really has got a bargain.

That said, I still come out with a profit, albeit, less than I'd hoped for (I thought it would hit 40p and if someone else comes in, could still do), but as a VOD shareholder as well, I get the benefits that this takeover will bring.

So hey; swings and round-a-bouts!

eccyman 23 Apr 2012 , 3:47pm

Will Ofcom or the EU put their sticky fingers in this deal?

realist2 23 Apr 2012 , 4:24pm

Another £600 down the drain!

harw1n 23 Apr 2012 , 5:39pm

CWW was one of my first purchases when I started investing and I paid 50p/share! What happens now? The shares are still in my portfolio, will they just be automatically sold to VOD?

jaizan 23 Apr 2012 , 7:59pm

Harwin, assuming the deal goes through, you will have to sell out to Vodafone. Or sell on the open market first. That's one of the risks of investment.

Providing you are making good selections, over the long term, the rewards will outweigh the risks.

Finally, a sale at 38p is quite a good deal compared with the 19p price when the bid process started.

naltrom 30 Apr 2012 , 2:59pm

Does anyone think the Indian Government's intended huge capital gains back tax on Vodafone of 406b INR (equivalent to nearly £5b I think) is reflected in the current price? I doubt it as that has been challenged but they intend to change the law to make it stick!

harw1n 02 May 2012 , 6:13pm

Thanks Jaizan, I may as well wait for the deal to go through then!

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